Block-Granting Medicaid Is a Long-Overdue Way of Restoring Federalism and Promoting Good Fiscal Policy

This new video from the Center for Freedom and Prosperity explains why Medicaid should be shifted to the states. As I note in the title of this post, it’s good federalism policy and good fiscal policy. But the video also explains that Medicaid reform is good health policy since it creates an opportunity to deal with the third-party payer problem.

One of the key observations of the video is that Medicaid block grants would replicate the success of welfare reform. Getting rid of the federal welfare entitlement in the 1990s and shifting the program to the states was a very successful policy, saving billions of dollars for taxpayers and significantly reducing poverty. There is every reason to think ending the Medicaid entitlement will have similar positive results.

It’s wroth noting that Medicaid reform and Medicare reform often are lumped together, but they are separate policies. Instead of block grants, Medicare reform is based on something akin to vouchers, sort of like the health system available for Members of Congress. This video from last month explains the details.

In closing, I suppose it would be worth mentioning that there are two alternatives to Medicaid and Medicare reform. The first alternative is to do nothing and allow America to become another Greece. The second alternative is to impose bureaucratic restrictions on access to health care – what is colloquially known as the death panel approach. Neither option seems terribly attractive compared to the pro-market reforms discussed above.

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Daniel, the problem with vouchers is that the average citizen (and most especially seniors) would be easily bamboozled into buying an initially cheap insurance policy that exists mainly to enrich the insurance company. Below is an article by Jane Bryant Quinn from 1996 about the “Spiral of Death” health insurance policies sold to individuals by private life insurance companies.

NEW YORK. — A lawsuit filed in Illinois is the first, to my knowledge, tochallenge an odious method of pricing health insurance. It’s known,appropriately, as the “death spiral.” If you have individual or small-
group insurance, it could cost you your coverage just when you need it
most.

Policyholders are death-spiraled when they’re sick and uninsurable
anywhere else. The company runs up your premiums until you can’t
afford to pay. You eventually drop out, which saves them the cost of
your medical bills.How high could premiums go? Just ask Mark Gilbert, a retired busi-nessman in Lincolnwood, I1, who sued Bankers Life & Casualty of Chi-cago. He was paying for coverage on his daughter, whose name he askedme not to mention. The annual premiums, he says, rocketed from $1,333 in 1990 to $13,844 in August 1995. Bankers Life says it doesn’t com-
ment on pending litigation.

Gilbert’s daughter, who is 53, is clinically depressed and has run up
big bills for drugs and psychiatric care. Ironically, she’s also one of the
“lucky” ones (or her father is). In 1995, she qualified for Medicare. Gil-
bert no longer has to face even higher premiums to ensure his daughter’s
care.

For those who can’t pay the premiums, or who don’t qualify for Medi-
care, the choices are shocking. They can: (1) let their medical bills drive
themselves and their families into poverty, which qualifies them for Med-
icaid; (2) run up their bills, then escape them by filing for bankruptcy;
(3) beg for charity care; or (4) go without care, perhaps at risk to their
lives. Few Americans think this can happen to them if they buy an
individual health insurance policy that’s guaranteed renewable. With
that policy, you join a pool of people sharing risks. In any year, the
premiums paid by the healthy members (who make few claims) help
hold down the cost of the pool as a whole.

What makes a pool work is the constant infusion of new members.
They’ve just passed a health test, so they’re the least likely to make
claims. But most health insurers don’t keep these pools open to new blood.
After 12 to 36 months, they may close the pool and start a new one,
issued on a new policy form. As the members of the older pool age, the
number and size of their claims go up. To cover the cost, the insurer
jacks up premiums at a rapid rate.Pretty soon, the pool’s healthy members start dropping out. Theyswitch to newer, cheaper pools, offered by that same insurer or by some other insurance company.

That’s when the death spiral begins. The members left behind are in
poorer health, which drives up their premiums even more. Slowly, the
sicker people leave, too, because they can’t afford the price. When the pool becomes unprofitable, it may be canceled altogether. Your renewal “guarantee” means only that you can’t be canceled individually. The insurer is free to terminate your entire group.

As long as you and your family remain in excellent health, you can
jump to cheaper policies. But some day, one of you may fall ill — and
that’s when your personal death spiral starts. Gilbert’s lawsuit charges that this method of pricing is illegal. The suit says it’s a form of “prohibited discrimination,” to let the death spiral strand the sick in a shrinking insurance pool. It also charges breach ofcontract — because premium increases were to be tied only to the insured’s age, increases in benefits and increases in medical costs.

His attorney, Michael B. Hyman, of the law firm Much Shelist Freed
Denenberg Ament Bell & Rubenstein in Chicago, has asked the court to
certify the suit as a class action. Bankers Life says that the terms and premiums of all its policies “arefiled with and reviewed by state insurance regulators,” and that the com-pany “complies fully with its obligations to each policyholder.”

Dick Rogers, deputy director of the Illinois Department of Insurance,
says Illinois doesn’t approve or disapprove premium rates. “We believe
that competition will control the rates,” he says. But there’s no competition for people whose health locks them into the policies they have. Captives are stuck with whatever the insurance company wants to charge.
Rogers says “this concept of the death spiral … is not an uncommon
practice,” adding, “I’m sure Bankers is no different than most.” There’s
the pity of it. Insurance regulators know about the death spiral, yet see
it as nothing worth getting excited about.

Block granting medicaid? Nope. Eliminate the prescription plan and medicaid before you look at the other entitlement programs. Every program should be liable to go up on the blocks until the feds are capable of paying off their debt at a vorocious rate.

Eliminate funding to every liberal group too. Let Soros use his money on that stuff instead of underming the USA.

Remember: Thomas Ball’s immolation, he gave his life for your children.

[…] income redistribution. Welfare reform in the 1990s moved the ball in the right direction, and that success could be replicated by block-granting Medicaid and adopting other policies that put state and local governments back in […]

[…] 3. The welfare reform legislation of the 1990s was a small step in the right direction because it eliminated a federal entitlement and shifted responsibility back to the state level. This success story should be replicated for programs such as Medicaid. […]

[…] This is a noteworthy passage because GOPers (for the first time in a long time) actually did try to do something meaningful. The Ryan budget contained sweeping structural reforms to both Medicare and Medicaid. […]

[…] To elaborate, not all entitlement reform is created equal. As I explained in this set of videos, good reform means putting individuals back in charge and restoring market forces. It means personal retirement accounts for Social Security. It means vouchers for Medicare. And it means block-granting Medicaid back to the states. […]

[…] deductibles. This is a principal cause (along with failed entitlement programs such as Medicare and Medicaid) of the third-party payer crisis. Shifting to a flat tax means that all forms of employee […]

[…] deductibles. This is a principal cause (along with failed entitlement programs such as Medicare and Medicaid) of the third-party payer crisis. Shifting to a flat tax means that all forms of employee […]

[…] but they’re the wrong kind of changes. Instead of the structural reforms to Medicare and Medicaid contained in the Ryan budget, the Simpson-Bowles report basically calls for price fixing and means […]

[…] deductibles. This is a principal cause (along with failed entitlement programs such as Medicare and Medicaid) of the third-party payer crisis. Shifting to a flat tax means that all forms of employee […]

[…] deductibles. This is a principal cause (along with failed entitlement programs such as Medicare and Medicaid) of the third-party payer crisis. Shifting to a flat tax means that all forms of employee […]

[…] also good news that the Ryan Budget calls for structural reform of entitlement programs, including Medicaid block grants and Medicare premium support. The budget also assumes the repeal of the costly Obamacare […]

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[…] reasons for optimism. And I think the bulk of Obamacare spending could be repealed as part of a Medicaid block grant if and when Washington is controlled by lawmakers who are serious about addressing the entitlement […]

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[…] plan, but they’re the wrong kind of changes. Instead of the structural reforms to Medicare and Medicaid contained in the Ryan budget, the Simpson-Bowles report basically calls for price fixing and means […]

[…] government has screwed up the health sector, both because of spending programs such as Medicare and Medicaid and because of tax and regulatory distortions that have mutated the supposedly private insurance […]

[…] bad consequences of Obamacare and make a principled case for pro-market reform (meaning not only Medicaid reform and Medicare reform, but also tax reform to help deal with the third-party payer […]

[…] bad consequences of Obamacare and make a principled case for pro-market reform (meaning not only Medicaid reform and Medicare reform, but also tax reform to help deal with the third-party payer […]

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[…] but Kasich probably assumes he won’t be around to deal with that problem. This is why the entire program should be block-granted to the states. If Kasich really thinks God wants a bigger Medicaid system, he should go to Ohio voters and ask […]

[…] plan, but they’re the wrong kind of changes. Instead of the structural reforms to Medicare and Medicaid contained in the Ryan budget, the Simpson-Bowles report basically calls for price fixing and means […]

[…] reasons for optimism. And I think the bulk of Obamacare spending could be repealed as part of a Medicaid block grant if and when Washington is controlled by lawmakers who are serious about addressing the […]

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[…] P.P.S. While I’m a very strong advocate of personal retirement accounts (my Ph.D. dissertation was about Australia’s very good system), I’ll be the first to admit that it’s even more important to modernize Medicare and Medicaid. […]

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